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US Federal Reserve slows monthly bond-buying to $55bn US Federal Reserve hints at interest rate rise in 2015
(about 1 hour later)
The US Federal Reserve has reduced its monthly bond-buying programme by $10bn (£6bn) to $55bn, its third cut in a row to the stimulus efforts. The US Federal Reserve Chair Janet Yellen has hinted that interest rates in the US could start to rise in early 2015.
It said while growth had slowed during the winter months, there was sufficient "underlying strength" in the broader economy to support the jobs market. Ms Yellen said the Fed could begin raising rates six months after it halts its monthly bond-buying programme.
In a key move, the Fed said it will monitor a wide range of data before deciding when to raise interest rates. She made the remarks after the Fed said it will scale back bond purchases by a further $10bn (£6bn) per month.
It had previously hinted at doing so once the jobless rate fell to 6.5%. This is the third time in a row that the central bank has tightened its stimulus efforts.
"To support continued progress toward maximum employment and price stability, the committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate," the central bank said in a statement. The latest reduction brings the Fed's monthly bond-buying down to $55bn from $85bn last year.
"This is the kind of term it's hard to define," Ms Yellen said at a press conference. "Probably means something on the order of six months, or that type of thing."
If bond purchases end - as expected - later this year, this would imply rate increases around April 2015.
Broader indicatorsBroader indicators
The Fed lowered its overnight interest rate to 0% in December 2008 as part of the steps it took to trigger growth in the economy amid the global financial crisis.The Fed lowered its overnight interest rate to 0% in December 2008 as part of the steps it took to trigger growth in the economy amid the global financial crisis.
That crisis hurt the US economic growth and resulted in high levels of unemployment.That crisis hurt the US economic growth and resulted in high levels of unemployment.
Along with lowering the interest rates, the central bank also started buying bonds in an attempt to keep long-term borrowing costs low.Along with lowering the interest rates, the central bank also started buying bonds in an attempt to keep long-term borrowing costs low.
The idea was to encourage businesses to borrow and spend more, to try an spur growth in the economy and create more jobs. The idea was to encourage businesses to borrow and spend more, to try and spur growth in the economy and create more jobs.
The stimulus efforts appear to have had an impact and the US economy has been showing signs of recovery of late and the unemployment rate has fallen to 6.7%.The stimulus efforts appear to have had an impact and the US economy has been showing signs of recovery of late and the unemployment rate has fallen to 6.7%.
That has seen the central bank scale back its key stimulus measure, the bond-buying programme also known as quantitative easing, for three months in a row.That has seen the central bank scale back its key stimulus measure, the bond-buying programme also known as quantitative easing, for three months in a row.
However, the bank said that it would look at multiple factors before approving any rise in interest rates. However in its latest policy decision, the Fed said it would look at multiple factors before approving any rise in interest rates.
It had previously hinted at doing so once the jobless rate fell to 6.5%.
"This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments," it said."This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments," it said.
Nervous markets?Nervous markets?
US stock markets fell on the news.US stock markets fell on the news.
Some analysts are saying the change in the Fed's guidance had some worried that the rates may rise sooner than expected.Some analysts are saying the change in the Fed's guidance had some worried that the rates may rise sooner than expected.
"The Fed moved the goal post again," said David Molar, managing director at Hightower."The Fed moved the goal post again," said David Molar, managing director at Hightower.
"It goes from a 6.5% unemployment threshold to a qualitative approach which is nebulous for the market."It goes from a 6.5% unemployment threshold to a qualitative approach which is nebulous for the market.
"No one knows what will trigger further tapering, a pause in tapering or an increase in asset purchase. It's a major change in policy.""No one knows what will trigger further tapering, a pause in tapering or an increase in asset purchase. It's a major change in policy."
Mark Grant, managing director at Southwest Securities added: "What seems to be troubling the market is that even though it reiterated that it wouldn't be raising rates this year, people were put on notice that a hike is coming."Mark Grant, managing director at Southwest Securities added: "What seems to be troubling the market is that even though it reiterated that it wouldn't be raising rates this year, people were put on notice that a hike is coming."
"We'll likely see some rise in short rates as a result of this, if not out across the whole curve.""We'll likely see some rise in short rates as a result of this, if not out across the whole curve."